Understanding Your Student Loan Opportunities

Debunking the Maze of Federal Student Loans and Processes

The student loan maze has become a challenge for the average American college-bound student as well as their parent. Without the proper understanding of the system and the types of financial aid available, students are unable to make educated choices regarding college.

Two different types of student loans have come to figure prominently in almost any college student’s education: federal loans and private or alternative student loans.

Federal System of Student Loans

The federal government offers two sources for federal loans: the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program (FFELP).

The FFELP was designed to provide wider access to federal loans as administered through eligible student loan lenders. The loans are very similar to the Direct Loans, barring a few exceptions. Hundreds of lenders across the country offer the FFELP.

The Direct Loan Program is administered directly through the U.S. Department of Education.

Federal Loans

The following loans represent millions of dollars in federal aid. Annually students and parents apply for funds dependent upon various criteria.

Stafford Loans

Stafford Loans have almost become a household name. The loans are the most widely disbursed student loan. Almost every college student qualifies for some degree of funding:

Parent PLUS Loans

The Parent PLUS Loan offers parents of dependent college students access to federal funds so they can reasonably put their kids through school. College tuitions have made anything but reason out of the financial end of it, but PLUS Loans continue to be popular vehicles. The following criteria and features apply to the Parent PLUS Loan:

Graduate and Professional PLUS Loans

A few years ago the federal government added the Graduate/Professional PLUS Loan to its crew of student aid products. This loan gives graduate students more flexibility to access federal monies. The rationale? Most grad students are independent and academic costs increase with the degree. The following criteria and features apply:

Perkins Loans

Although the Perkins Loans are federally funded student loans the government classifies them under “campus-based aid.” Simply put, the Perkins Loan is disbursed directly through a student’s campus with funds provided by the government. Sometimes individual campuses roll in a percentage of funds out of their own coffers:

Applying for Federal Student Loans

Any student that wishes to be considered for federal student loans, either through the Direct Loan Program or an FFELP lender must first complete the Federal Application for Free Student Aid, a.k.a. the FAFSA. Ironically the FAFSA is the key to federal aid; without it, a student is ineligible for consideration. In fact other student loan entities require the FAFSA for consideration under their own programs. Unfortunately, the form is notorious for its complexity. Lenders as well as high schools around the country have addressed the issue in recent years. Seminars and informational help sessions have become a commonplace calendar event. Parents and students confused over the federal student loan process, including the FAFSA, crowd into auditoriums and lecture halls to fill up on the counsel of financial aid professionals. Many more receive hands-on help filling out the FAFSA itself.

Repaying Federal Student Loans

Flexible repayment options are another feature of the federal loan program. Borrowers choose among the following types of repayment plans that take into consideration a range of financial situations:

Alternative Student Loans

Alternative student loans, sometimes called private student loans, offered through student loan providers and private lenders give students a typically more affordable option than general signature loans. The development of alternative loans was spurred along by the growing gap between federal loan awards and the skyrocketing costs of college tuitions everywhere.

Many of the FFELP lenders have added at least one type of alternative loan to their student loan lines. And many private banks now feature a private student loan product. In some cases lenders now offer a variety of alternatives. Because most federal loans exclude some types of higher education, such as continuing education, professional and technical programs and distance learning or online degrees, lenders have found a new niche market for more targeted alternative loans.

Unlike the federal loans, borrowers interested in alternative loans must apply directly through the lender. The FAFSA is completely unrelated. The following features are common among alternative student loans:

If you are in the market for student loans, your chances at winning the best loans and other aid are directly relative to your understanding of the components in the system: types of federal loans, how to apply, how to repay, and types of alternative loans.